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Earnings Management and Audit Opinion

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  • Elaheh Moazedi
  • Ehsan khansalar

Abstract

The subject of the present research is the study of the relationship between earnings management (accrual-based and real) and auditor¡¯s opinion. Alongside putting the control variables into consideration, this this paper studies the relationship between earnings management (accrual-based and real) and auditors¡¯ opinion. The purpose of this research is to examine the effect of income smoothing and manipulation on the opinion of independent auditors. This research includes two independent variables i.e. earnings management (based on discretionary accruals) and real earnings management, one dependent variable i.e. auditor¡¯s opinion, along with control variables. In the first main hypothesis the relation between real earnings management and auditor¡¯s opinion is examined; and the second hypothesis involves the association between discretionary accrual-based earnings management and auditor¡¯s opinion. In this research some 117 firms in the time period 2008-2013 are empirically investigated and studied using logistic regression method. In conclusion, the second and third hypotheses are rejected; however examination of the first and fourth hypotheses confirms their significant association with auditor¡¯s opinion.

Suggested Citation

  • Elaheh Moazedi & Ehsan khansalar, 2016. "Earnings Management and Audit Opinion," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 8(4), pages 113-122, April.
    • Handle: RePEc:ibn:ijefaa:v:8:y:2016:i:4:p:113-122
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    References listed on IDEAS

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    1. Jere R. Francis & Jagan Krishnan, 1999. "Accounting Accruals and Auditor Reporting Conservatism," Contemporary Accounting Research, John Wiley & Sons, vol. 16(1), pages 135-165, March.
    2. Maria Tsipouridou & Charalambos Spathis, 2014. "Audit opinion and earnings management: Evidence from Greece," Accounting Forum, Taylor & Francis Journals, vol. 38(1), pages 38-54, March.
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    5. Roychowdhury, Sugata, 2006. "Earnings management through real activities manipulation," Journal of Accounting and Economics, Elsevier, vol. 42(3), pages 335-370, December.
    6. Lam, Kevin C.K. & Mensah, Yaw M., 2006. "Auditors' decision-making under going-concern uncertainties in low litigation-risk environments: Evidence from Hong Kong," Journal of Accounting and Public Policy, Elsevier, vol. 25(6), pages 706-739.
    7. Mark T. Bradshaw & Scott A. Richardson & Richard G. Sloan, 2001. "Do Analysts and Auditors Use Information in Accruals?," Journal of Accounting Research, Wiley Blackwell, vol. 39(1), pages 45-74, June.
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    Cited by:

    1. Filipović Ivica & Šušak Toni & Lijić Andrea, 2021. "The Effect of Auditor Rotation on the Relationship between Financial Manipulation and Auditor’s Opinion," Business Systems Research, Sciendo, vol. 12(1), pages 96-108, May.

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    More about this item

    Keywords

    accrual-based earnings management; real earnings management; auditor¡¯s opinion;
    All these keywords.

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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